All posts tagged China

A BMW M6 convertibleon display inside the company’s new brand store in Paris, France, on Wednesday.

The possibility of a hard landing for the Chinese economy and Europe’s growth-sapping sovereign debt crisis are unnerving investors worldwide. But BMW, the world’s leading maker of luxury cars, is speeding its investment in these regions into the fast lane.

Thursday, the German constructor announced a €500 million investment in China with partner Brilliance China Automotive Holdings to expand production capacity while the two are also examining ways to increase engine production.

The day before, BMW inaugurated one its newest “BMW brand” stores on Avenue George V in Paris, nestled between five-star hotels and luxury boutiques just off the Champs Elysées.

At first blush, BMW does look over-confident. HSBC’s purchasing managers index for China, which became BMW’s biggest single market in April, fell to a preliminary reading of 48.7 in May from 49.3 in April, indicating that manufacturing activity declined for the seventh straight month.

For months, the currency has benefited from Australia’s close trade ties with China as well from relatively high Australian interest rates. As one of the leading “high beta” currencies, the Aussie has been the obvious place for international investors to head when they have been in the mood to take on higher risk.

Before long, China will probably force the bank into action to keep the yen on the slide. The problem for Japan is this:

Recovery from the devastation of the tsunami a year ago is proving slow and painful, and deflation continues to threaten the economy.

With the government moving sluggishly on structural reforms that might help, the Bank of Japan has attempted to come to the rescue.

Last month, it surprised financial markets with an aggressive asset-purchase program and a promise to get inflation back up to 1%. The liquidity injection was designed to stimulate the domestic economy and to weaken the yen to help export growth.

Given its success, many expected the central bank to repeat the exercise this month. It didn’t. Instead, the bank just increased a credit facility designed to boost lending to growth industries.

Some financial markets were flummoxed, and yen sellers were discouraged. However, news from China could well put the Bank of Japan back on a more aggressive easing stance sooner than expected.

When Chinese Premier Wen Jiabao announced last week that growth this year would be less than expected, a shiver ran down the spine of financial markets.

Strong Chinese growth remains vital to the global recovery as there is still little to take its place.

The U.S. economy may be getting better but Japan continues to struggle, the euro zone could be slipping into a double-dip recession and even the U.K. appears to be stumbling, according to new data showing a surprising slump in industrial production.

Hopes that more emerging markets might take up some of the slack as China slowed are also fading. Take one look at the recent growth data from Brazil, which has been forced into slashing interest rates to help the economy.

So it is still all eyes on China as a prime engine for the global recovery.And why any suggestion that China might be heading for a hard landing sends financial markets into a panic.

This seems an odd question in light of oil’s recent surge. But oil has largely being driven by the latest Middle Eastern worries. Look further east still, all the way to China, and there are reasons to wonder whether the upward trend in commodity prices may start to weaken.

It’s hard to overstate how crucial China has been to the commodity boom during recent years, especially in industrial metals. A recent Credit Suisse report (via the Pragmatic Capital blog) highlights China’s dominance. In 2000, China accounted for 14% of global demand for iron ore. By 2010, that percentage had hit 62%. For copper, those percentages are 13% and 29% respectively. For coal, they’re 0.3% and 15%. For soybeans–crucial as an animal feed–the percentage went from 23% to 59%.

So the view of where commodities are heading depends heavily on China’s economic prospects. The Chinese government tweaked its GDP target to 7.5% this year from the 8% it has aimed for during recent years. Of course, reported GDP has tended to exceed target–it came in at 9.2% in 2011 and 10.3% in 2010–so, for most market commentators, the change to the official target is trivial.

China is now the country with the biggest demand for luxury watches. The internet says so.

Despite last year’s move by Beijing to ban outdoor advertisements that promote a lavish lifestyle and the government’s announcement that it was targeting lower gross domestic product growth this year, the march of the Chinese luxury consumer goes on.

This view was confirmed by a report published Wednesday, which says the future still looks good for watchmakers who continue to roll out boutiques in China.

According to the Worldwatch report – a study produced by the Digital Luxury Group – China has now surpassed the U.S. as the country exhibiting the greatest demand for watches, with 23% of all watch-related internet searches.